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S 3217. (Overhaul of financial regulations) Merkley of Oregon amendment that would prohibit mortgage brokers and loan originators from receiving payments based on the terms of their loans, and would institute other lending prohibitions/On agreeing to the amendment

This vote was on an amendment by Jeff Merkley, D-Ore., that would prohibit mortgage brokers and loan originators from receiving payments based on the terms of the loans that they sell. It also would prohibit lenders from making a loan without verifying a person’s ability to actually repay that loan, using income as one of the determining factors. Additionally, the amendment would require that lenders assess peoples’ ability to repay their loans based on the maximum interest rate allowed for the loan’s first five years. The amendment was offered to a bill that aims to close gaps in financial regulations, strengthen oversight of consumer lending and more closely oversee certain kinds of exotic financial investments.

Merkley said his amendment is intended to shut down the so-called “liar loans” – those that required no proof of income – that created the subprime mortgage crisis.

“Second, it establishes underwriting integrity so that underwriters will look at loan to value, credit history, and current obligations—again, integrity of mortgages—which enables loans to be securitized and creates liquidity so families can get loans at a lower interest rate,” Merkley said. “Third, the [amendment] ends steering payments. This is essential. The originators have been in an awkward position where they have been paid bonuses for making deals that weren’t in their clients’ interests.”

By a vote of 63-36, the amendment was adopted. Every Democrat present voted for the amendment. All but five Republicans present voted against the amendment. The end result is that the bill went forward with language that would prohibit loan brokers from profiting off of loans at the expense of their customers, and requiring that they verify in real terms that someone has the financial ability to repay their loan.